/www.bloomberg.com/ By Daisuke Takato
Tokyo, (Bloomberg) -- Japan's November industrial production had its biggest drop in a year as Sanyo Electric Co. and other companies shut factories or cut jobs. The country's labor force also shrank as workers gave up looking for jobs.
Industrial production fell a seasonally adjusted 2.2 percent from October, the third straight drop, the Ministry of Economy, Trade and Industry said. Economists had predicted a 0.5 percent decline. A separate government report showed 210,000 people dropped out of the job market last month.
Sanyo, Seibu Department Stores Ltd. are among those cutting costs and jobs as growth in the world's second-biggest economy slows. Today's figures add to recent signals that Japan may struggle to avoid its fourth recession in a decade, economists said.
``We had expected production would be flat in the fourth quarter of this year and then start to shrink in the first quarter'' of 2003, said Yasukazu Shimizu, a senior economist at Aozora Bank Ltd. ``The economy has already begun to slide.''
The government today forecast output would rise 0.3 percent in December, half the rate they predicted a month ago. Output will expand 1.2 percent in January, the Ministry of Economy, Trade and Industry said today.
Even with a gain in December, industrial output, which accounts for almost a quarter of the economy, will probably contract about 1.2 percent in the fourth quarter, Shimizu said.
Markets
Japanese bond futures rose and yields fell to match their lowest in four years after today's reports. The No. 244 bond, which carries a 1 percent coupon and matures in 2012, rose in morning trading as its yield fell 2 basis points to 0.910 percent, matching the lowest since Nov. 1998.
Stocks of machinery makers such as Tokyo Electron Ltd. fell, trimming the benchmark Nikkei 225 Stock Average 0.2 percent for the day to 8,682.59 in morning trading in Tokyo.
The exodus of jobseekers in November helped bump the unemployment rate to 5.3 percent from a record 5.5 percent in October. The government said 60,000 workers were laid off last month.
The jobless rate ``no doubt showed improvement, but this is just one month's data and when you look at other economic statistics, it's not a number we can be relieved about,'' Yasuo Fukuda, the government's Chief Cabinet official, said after the figures were released.
Japan's labor force totaled 66.66 million workers in November, down from 66.87 million, the government's statistics bureau said. The total number of unemployed fell by 140,000 to 3.56 million from 3.70 million in October.
Manufacturers Gain
Manufacturers added 10,000 jobs in the month while the retail, wholesale and restaurant industries shed 30,000 staff.
Sanyo, the world's biggest maker of cell-phone batteries, said last month it would cut wages by as much as a third in its home appliance division and shift production to countries such as China to tap lower labor costs.
Seibu Department Stores, a closely held retailer, said it will cut 800 full-time workers by February to reduce costs, bringing its total job cuts this business year to 2,000, or 37 percent, of its workforce. Sogo Co., a failed department store chain operator, also said this month it will slash 12 percent of its full-time workforce by February.
Prices Drop
A separate report showed that Tokyo and nationwide core consumer prices, which exclude fresh foods, extended declines.
Tokyo's core prices, which exclude fresh food, fell 0.9 percent in 2002, the fourth year of declines. The drop was led by falls in prices related to education and entertainment as well as clothing, housing rent and durable goods. Core prices in the nation's capital fell 0.1 percent in December, seasonally adjusted, and fell 0.7 percent from a year ago.
Nationwide core prices fell 0.8 percent in November from last year, and haven't risen since April 1998. Core prices exclude fresh foods because they can fluctuate depending on weather conditions and other factors.
Spending in November by salaried workers fell 2.1 percent from a month ago and fell 3.4 percent from a year ago, another government report showed today.
The government said the economy is ``weakening'' in its monthly economic report this month, citing the slump in industrial production and the job market.
Worse to Come
Economists say the worst isn't over. Prime Minister Junichiro Koizumi's push to get banks to dispose an estimated 52.4 trillion ($425 billion) of bad loans, may spark more bankruptcies and falling prices.
``The bad loan write-off prescription will come with two allergic reactions -- joblessness and deflation,'' Hisashi Yamada, senior economist at Japan Research Institute Ltd. Yamada says the jobless rate will ``easily'' exceed 6 percent in the fiscal year ending March 31, 2004, and he expects the economy to shrink 0.5 percent.
The write-offs are also taking a toll on the lenders. UFJ Holdings Inc., which last year posted the second-worst loss by a Japanese bank, said this week it will close at least 100 of 660 branches and cut more than 1,000 administrative jobs by March 2005.
Twenty-nine publicly traded companies have gone bankrupt in the year to November, more than double the record of 14 set last year. Japan's growth slowed in the third quarter to 0.8 percent from 0.9 percent, and the government forecasts the economy will grow 0.6 percent in the next fiscal year starting April 1.